How To Get Relief On Arrears During ITR Filing? Check All Details Here

As you know arrears are payments meant for previous years but received in the current year. How is tax calculated on arrears? Read here.
income tax, tax filing, tax on arrears, da arrears, how to reduce tax liability, tax liability,

How To Reduce Tax On Arrears? Check Here (Image Source: iStock)

When individuals receive arrears or additional payments such as delayed salary, pension, or rent, their tax liability can increase significantly. This happens because these payments are added to the total income for the current financial year, potentially pushing the individual into a higher tax bracket and resulting in a higher tax bill.

Why Tax Liability Increases With Arrears?

Now the question that is legitimate and coming to your mind is why tax liability increases with arrears. As you know arrears are payments meant for previous years but received in the current year. Let us understand it with an example. If an employee receives salary arrears in 2023 that were due in 2022, these arrears are taxed as income for 2023.
As a result, the arrear amount received will be added to your total income. This can lead to a higher tax rate on the arrears.

How To Get Relief On Arrear Money During ITR Filing?

For such things, there are rules. To alleviate this burden, taxpayers can seek relief under Section 89(1) of the Income Tax Act, 1961.

How This Provision Is Helpful?

This provision helps reduce the tax impact of receiving arrears.

How Does This Provision Work?

This provision is beneficial in reducing tax.
Calculate Tax For The Current Year
Determine the tax liability for the year in which the arrears are received.
Calculate Tax For The Previous Year
Determine what the tax liability would have been if the arrears had been received in the appropriate previous year.
Compute Relief
The difference between these two amounts is the relief available under Section 89(1).
Form 10E With IT Return
To claim this relief, taxpayers must file Form 10E with their income tax return. This form is specifically for reporting arrears and calculating the relief under Section 89(1).
End of Article
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